What area is your expertise?
• This report is for Jacksonville, Florida. Specifically, the geographic area of Duval and Northern St. Johns counties.
What trends do you see presently in office development in your area?
• As space becomes absorbed new construction is being planned for downtown and on the Southside. With the relative lack of new construction for 2006, current vacancy rates have hit an all time low of 11.6 percent, at the end of the third quarter. At some point in the first half of 2008, the market should see the vacancy rate drop to 10 percent indicating a reasonable healthy office market. Higher occupancy levels will likely mean an uptick in asking rents by next year.
For the first half of 2007, investors spent over $212 million dollars for various prime Jacksonville office buildings. This is a new sales record for the city during a six-month period. Their actions represent a solid vote of confidence in Jacksonville’s future and a clear signal that better times are ahead for the local office market.
Supporting improving conditions in the office sector is the overall strength of the local economy. Jacksonville’s location, diversified workforce and its anticipated port expansion, combined with existing superior transportation and logistical systems, produces the kind of business, employment and population growth that creates opportunities for the office market.
Who are the active office developers in your area?
• Flagler Development is developing Flagler Center in south Duval County, which is a 1,022-acre business park. The center holds entitlements for 2.7 million square feet of office development. Lakeside One and Lakeside Two are 112,000 square feet each and are 90 percent leased and Lakeside Three, consisting of 112,300 square feet, was delivered in fourth quarter 2007. Lakeside Five, consisting of 142,000 square feet, will be delivered in third quarter 2008.
Liberty Property Trust is developing Butler Plaza 111, in the core of the suburban office market, better known as Butler/Baymeadows. This building will consist of 82,000 square feet and will be designed as a Leadership in Energy and Environmental Design (LEED) building, which is the first of its kind for Jacksonville. Delivery is anticipated by second quarter 2008. Liberty Property Trust has 2.28 million square feet of office product and flex product in the Jacksonville market
Please name one or two significant office developments in your area. What impact will these projects have on the market?
• As mentioned above, Flagler Development’s Lakeside Buildings and Liberty Property Trust’s Butler Plaza 111 building will add to the exiting 11.7 million square feet of Class A office product. As demand for Class A product increases, so will rental rates. It is projected that rental rates will increase by 3 percent to 5 percent in early 2008.
Where is the majority of development taking place? Why is this area doing well?
• The majority of development is taking place in the southern part of Duval County and the northern part of St. Johns County. New housing markets have emerged in this area as well as new retail centers. Office growth and development will continue to shift with the expanding population.
What area do you expect to be the next big development market? Why?
• Northeast St. Johns County, in particular, Nocatee — northeast Florida’s largest planned community. By the year 2025, Nocatee is projected to have 4.2 million square feet of office space, one million square feet of commercial space, and 35,000 residents, about three times the population of St. Augustine.
What areas are doing well in terms of office leasing? Which areas are struggling with office leasing?
• The epicenter of the suburban office market is along Butler Boulevard in the Butler/Baymeadows and Southside submarkets. This area will continue to do well because it is the most densely populated area and supports a large office inventory, which consists of 16.1 million square feet. The Jacksonville Beach area has an 8.4 percent vacancy rate with the highest average rents of $22.50 per square foot due to the lack of office inventory and the desire to be at the beach.
The downtown CBD seems to lag behind most markets due to its increased cost in doing business with regards to the parking expense. Parking rates on average are $85 per month for surface space and $110 per month for covered/garage space. This can add another $2 -$3 per square foot to the employers cost of doing business.
Please give a measure of office vacancy rates and a measure of available sublease space.
• Jacksonville’s vacancy rates in the office market are 11.6 percent for third quarter 2007. This represents a gradual decline that began at the end of 2005. Sublease space in Jacksonville represents less than 12 percent of the overall office market and currently has a vacancy of .5 percent.
What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in the next year?
• The consensus among industry experts is that as long as interest rates stay below 8 percent the effect on the overall office market should be minimal. Current interest rates are well below that level and show every indication of going lower which will only be beneficial to the Jacksonville office market.
What is the status of job growth/ (un) employment rates and what bearing will it have on the office market?
• Jacksonville reports a 4.2 percent unemployment rate in the Jacksonville MSA, which is less than the national average of 4.9 percent. Employment growth remains steady at 2 percent per year, which is also above the national average of 1.1 percent. The Florida Chamber of Commerce reports 1,000 people move into Florida a day and approximately 7 percent of those are settling in Jacksonville. In Time magazine’s May 2006 issue of Business 2.0, Jacksonville was ranked in the top 10 ‘Hottest Cities’ that will lead job growth through 2015.
Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected?
• Despite positive net migration of approximately 7,400 people in 2006, the relatively strong pace of job creation over the past year had pushed Jacksonville’s unemployment rate down to 3.1 percent in March 2007. The unemployment rate has risen to 3.9 percent as of September 2007, according to the U.S. Dept of Labor Bureau of Labor Statistics. This contrasts with an unemployment rate of 4.3 percent for the state of Florida and 4.7 percent nationally. Job growth and population growth have been strong and steady and the office market will grow to keep pace.
Would you like to make any additional observations about the office market in your area?
• The office markets will continue to remain attractive for financial institutions, health care, government, law firms and business seeking a signature address as well as investors and developers, capitalizing on the office market recovery.
— Submitted by Fran Pepis, senior vice president with the Jacksonville, Florida office of Colliers Dickinson.